JOSEPH GIGLIO: Corporations, integrity and dead customers

Saturday

May 10, 2014 at 12:01 AM

By Joseph Giglio

These days, saying that no one much likes captains of industry is to exaggerate very little. It is as American as pizza, unwed mothers, cheating on your taxes and hating the Yankees.But the actions of one corporate titan more than 30 years ago stand out from the crowd and prove that it doesn’t need to be that way.

On Sept. 29, 1982, Johnson & Johnson executives learned that seven people from the Chicago-area died after swallowing Tylenol capsules laced with cyanide. Nothing of this sort had ever happened in the industry.

That summer, J&J’s Tylenol pain medication was by far the country’s leading analgesic with a 35 percent market share. The brand seemed unstoppable, until the unimaginable happened.

J&J’s handling of the crisis was a textbook example of doing the right thing and putting the customer first. The firm took immediate steps to recall and destroy the 31 million bottles on American shelves and it developed the first tamper-resistant packaging. The moves cost over $100 million, and that doesn’t include the effects of plummeting sales in the wake of the recall.

But the firm was ultimately rewarded for putting customer safety first. A year later, Tylenol was once again the nation’s top-selling analgesic. After two years, Tylenol was back to capturing 33 percent of the analgesic market.

Acting to protect customers in the earliest stages of the crisis was consistent with the first stanza of J&J’s corporate statement of purpose: “We believe that our first responsibility is to the doctors, nurses, and patients, to mothers and all others who use our products and services.” Senior managers understood that you protect the brand by protecting the customer. If you put the customer first, employees, stockholders and other stakeholders all do better in the long run; it’s about customer trust.

General Motors is the latest example of bad corporate behavior. We recently learned that GM waited over a decade to recall 1.6 million compact cars with faulty ignition switches that contributed to more than a dozen deaths across the country. When they finally did act, it was by sending technical service bulletins to dealers instead of immediately recalling cars. GM’s current CEO Mary Barra called the firm’s slow response an “extraordinary” situation and said she didn’t know why it took so long to fix the ignition.

To make matters worse, this comes just five years after the federal government became the de facto owner of General Motors when it invested more than $100 billion in taxpayer money to bail out the troubled automaker. The feds of course swear on a stack of bibles that the bailout was a rousing success, resulting in more than a million jobs being saved and GM again becoming the number one automaker in the world.

Barra must have felt something go dead inside her as she realized she was saying so little and saying it so late. After all, this is the new GM, a far different company today than before bankruptcy. We know this because GM keeps telling us, even though there’s no evidence to back it up. One can only assume if they say it often enough, it will be true.

GM remains unwilling to admit the company made mistakes. The automaker recently filed a motion asking a federal bankruptcy court to enforce a provision that shields the “new GM” from liability for incidents that took place before it emerged from its whirlwind Chapter 11 bankruptcy in July 2009.

GM could have learned a thing or two from J&J, whose response to the 1982 Tylenol poisonings did justice to the company’s stakeholders. Though the person or persons responsible for tampering with the pills has never been found, J&J’s reputation wasn’t lost.

It is not surprising that in the weeks and months following the crisis, J&J was praised in the court of public opinion for demonstrating that doing the right thing matters and that making the customer the first priority is good business. It’s a lesson GM’s top executives never learned.

Joseph M. Giglio is a professor of strategic management at Northeastern University’s D’Amore-McKim School of Business.